Just a little bit of healthy competition
Instead of creating perfect market conditions where Pareto Optimality has been realised, the US healthcare system exists in a state of market failure. The US spends more on healthcare per capita than any other country in the world and yet it lags far behind all other industrialised nations in standards of public healthcare provision and health outcomes. I argue that three main elements endemic to the US healthcare market have created conditions in which it has necessarily failed. Firstly, consumers’ willingness to pay for healthcare is often disproportionate to their capacity to do so. The result of this behaviour is inelasticity of demand for health related goods and services. As the desire for healthcare is rarely discretionary, the balance of inputs and outputs in the US health economy cannot exist in a state of equilibrium and as such creates conditions whereby healthcare providers can exploit their monopoly position of market power. Secondly, there exist a number of barriers to competition that would not occur in a ‘perfect’ free market system. Market monopolies conferred by intellectual property protections and regulatory processes mean that prices of healthcare and its related services can be raised to levels disproportionate to the actual value of the goods and services provided. Lastly, the US healthcare market is not an arena in which all parties to a transaction have access to perfect information. This informational asymmetry, compounded by the ‘agency relationship’ means that it is impossible for consumers to rationally compare competing options in the provision of health services. Resultantly, producers and providers are able to manipulate prices and distribution in favour of profit. Ultimately I conclude that the neoliberal paradigm that has dominated policymaking in the US healthcare system has acted against improving the lives of millions of people, and exists only in a state of perpetual market failure.